Talkin' 'bout Information Revolutions

By CIOinsight  |  Posted 03-06-2006

Talkin' 'bout Information Revolutions

Carlota Perez knows a thing or two about bubbles. in fact, the Venezuelan scholar has studied all five technological revolutions over the past two centuries, and she's found a series of similarities among them. According to her, we've still got a ways to go until the information revolution runs its course.

Perez is a research fellow at the University of Sussex and the University of Cam-bridge, and her book, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages (Edward Elgar, 2002), is widely studied by the academic and business communities.

CIO INSIGHT: What are the five technological revolutions you have identified?

PEREZ: Before our current information and telecommunications technology revolution that has made us all wonder how anybody survived without mobile phones and e-mail, we had the mass-production revolution, which created the "American Way of Life." It was based on the suburban home full of electrical appliances for domestic work and home entertainment, and of course there was a car so that you could drive to the nearby supermarket to stock the fridge and the freezer. It was the age of the automobile, cheap oil and synthetic materials, with universal electricity, telephones, airways and a highway network. That one was preceded, in the 1870s, by the age of steel and heavy engineering (including civil, naval, electrical and chemical). It set up powerful cross-continental systems of railways, steamships and world telegraph. It was the first global revolution, and we can draw many parallels between it and our own times.

The second revolution, which took place in the 1830s, was the age of steam and iron railways. And the first was the original Industrial Revolution, which introduced machines moved by water power and the construction of a canal network to move supplies and products from river to river and to the sea for export.

Each of these revolutions had a new central transport network for goods, people, energy and/or information, and each was made possible by the creativity of a different group of engineers: from the mechanical engineers who, in a sense, created our earlier revolutions, through to chemical and electrical engineers, and now the to microelectronics and information-technology innovators of our present day. But perhaps the most useful feature, in terms of being able to use the past to say something about possible futures, is the regularity in the sequence of periods of each of these great surges of development.

What are the phases of these technological surges?

Basically there are two main periods-installation and deployment-of about two or three decades, each with a financial crash in the middle. The NASDAQ collapse divided the current surge in two halves, just as the crash of 1929 cut the mass-production surge, and the "canal panic" and the "railway panic" (both in England) did during the other surges.

The installation period begins with what I call a Big Bang-a new universe of opportunities. In our case that would have been Intel's microprocessor in 1971 and, in the previous period, it was the Model T Ford. The early decades of installation are the "irruption phase" with all the new technologies happening in an old and declining economy. The later decades are the frenzy phase, when the new paradigm rejuvenates all the existing industries and flourishes fully. The problem is that the euphoria tends to create a financial bubble that inevitably ends in a collapse.

The deployment period is the Golden Age. That is when all the wealth creating potential of each revolution can really spread across the economy and benefit a wider cross-section of society. The deployment period ends when the new technologies and their applications reach maturity, innovation opportunities are exhausted, and productivity increases dwindle. That creates the conditions for the next revolution.

Next page: Where Are We Now?

Where Are We Now

What phase are we in today?

Actually, we are smack in the middle. Between the two periods there is what I have called the turning point, which is a time of institutional recomposition. It has lasted anywhere from two to 13 years (as was the case in the last one, in the 1930s). This is the period in which perverse trends have to be reversed: The income polarization and the madness of the bubble years have to be overcome, but also the decision-making power has to move (or be moved) from the hands of financial capital to those of production capital. Today, long-term investment is almost impossible, because the quarterly pressure for profits coming from the financial markets ties the hands of CEOs and every other top manager. Under those conditions cost-cutting can become more important than innovation, and lots of human capital can be wasted.

The most recent turning point saw the establishment of both the national welfare state and the main international organizations. That created conditions for the growth of mass markets in each country and around the world. This global revolution is going to need an equally imaginative set of institutions if it is to flourish in a peaceful and prosperous world. What have the global impacts of the IT revolution been?

Good and bad. Globalization is basically the result of the fantastic power and low cost of digital telecommunications. Because of that power, global corporations can be huge, and they can relate to an extremely large network of suppliers and allies across the world. Finance can function 24 hours a day, around the globe, for the same reason. Outsourcing, offshoring and every other phenomenon that Tom Friedman describes-in terms of the incorporation of new regions of the world to full participation in world markets-has come about on the wave of worldwide installation of the IT revolution. The knowledge society, with its potential for raising the quality of life of a great many people, is based on IT.

However, that same IT and that very globalization have also led to intense polarization. The rich have gotten richer and the poor poorer, within each country and across the globe. While many countries in Asia have risen to development, Latin America has been marginalized, and Africa and the Middle East practically excluded. The great migratory pressures of those who would risk their lives for a chance to work, and to live a better life, have the same origin as much of the violence and resentment that angry leaders so successfully foment, and that threatens the advanced world. One group fights with hope; the other with hate. And naturally, the latter can also take advantage of IT technologies

What are you seeing now in terms of the flow of global capital?

There is obviously a very high concentration of investment and employment creation in China and India, to the detriment not only of the other developing countries but also of the developed ones. If it weren't for the reinvestment of the Asian surpluses in the U.S., the American economy would be in very serious trouble. In my view, jobless growth is unacceptable for societies that have known a high quality of life for all. Something has to be done in order to induce a significant wave of investment in the advanced countries.

But none of this will be done by the markets alone. A major process of consensus would have to be undertaken to shift the present conditions through intelligent policies and a shared vision. Right now a lot of capital is being used in derivative mountains, infinite hedge fund loops and housing bubbles. All that could be creating jobs in America, in Europe and across the excluded regions of the world.

Is that similar or dissimilar to previous revolutions?

Well, the income polarization has occurred with each of the major bubbles, and the need to expand markets and to create opportunities for investment has appeared each time at this point in the surge. The Golden Age is essentially the flourishing of the full range of possibilities under more favorable institutional conditions, often with the intervention of the state reining in finance and redistributing income.

Next page: Each Revolution is Unique

Each Revolution is Unique

But each revolution is unique both in its opportunities and its dangers, in the progress it brings and the problems it creates. That is the social challenge that faces us in each surge. Institutional innovations are needed now to accompany and foster the technological and organizational ones.

Thoughts on what the next revolution may focus on?

I expect the next one to be structured around biotechnology, bioelectronics, nanotechnology and new materials, which in the next decades are all likely to take significant strides and have many isolated successes within the logic of the ICT paradigm. That is how it has always been. No revolution emerges from thin air; the future components must have been in gestation for some time before irrupting as a constellation.

Decades before the microprocessor, the world had electronic tubes, and then transistors; it had radar and analog control instruments; it had telecommunications by phone, telex and radio; it had television as well as cash registers, electric typewriters and, especially, mainframe computers. They were all disjointed and they developed under the logic of the mass-production paradigm. If you look at the history of semiconductors, you realize that the original diffusion of transistors was to make radios and record players portable. The microprocessor breakthrough makes information processing powerful and cheap, and the devices using microprocessors can become smaller and smaller; the computer chip enables the coming together of control, processing and transmission of information, and that synthesis gives birth to a whole new engineering logic.

A similar analysis can be made of the internal combustion engine, oil as fuel and petrochemical raw material, the early automobiles, made one by one as luxury vehicles in machine shops, and so on.

We do not know the nature of the breakthrough that will usher in the next revolution. By definition, a radical leap is unpredictable. What we can expect from historical experience, with a high level of likelihood, is that the present wave of opportunities and transformations will reach maturity in a few decades, and will be transformed in the next surge. It occurs to me, however, just as a stab in the dark, that within a bio-nano-materials revolution, perhaps bioelectronics could do for semiconductor information technology what the shift to steel did to iron railways: a quantum jump in power and possibilities. But I am sure your readers can hazard their own guesses about that.