Long-wave View of the Situation

As a specialized lens through which to view the types of problems and opportunities outlined above, we call attention to the work of economist Carlota Perez.  Perez addresses the observation that technological revolutions have been the drivers of long cycles in the world economy over the last 300 years. Her analysis is based on Kondratiev’s long-wave economic cycle theory.  Perez’s view of the theory is that successive surges of technological innovation drive predictable patterns of economic activity. According to this reading of economic history there have been four full long-wave cycles during the period since the industrial revolution, and we are in the middle of a fifth cycle at this point in the early 21st Century. The cycles and approximate start dates are: the industrial revolution (1771), the age of steam and railways (1829), the age of steel, electricity and heavy engineering (1875), the age of oil, automobiles and mass production (1908), and now the age of information and communications technology (ICT) (1971).

Each of these five cycles is perceived to have four distinct phases, with a disruptive transitional mid-point. The first phase is an “Irruption”. This is the sudden appearance of a new and interrelated set of technologies, which, taken together comprise a highly disruptive perturbation in the status quo in the economy at large. The Irruption is followed by a “Frenzy” phase, when entrepreneurs and investors pursue the development of the new technologies so furiously that financial capital becomes decoupled from underlying sources and production of value. With the decoupling of finance from value creation, pure speculation takes hold, leading to a bubble and then a major crash. This is followed by sustained period of growth based on the efforts to achieve full deployment of this new set of technologies throughout society. Production capital becomes dominant over financial capital and supports real wealth creation and productivity, especially during the “Synergy” phase, when people find many ways to apply the new technologies. The crashes do not invalidate the value of the technologies themselves (railroads, ICT, etc.). Deep value is obtained through the economic activities unleashed by application of the technologies. Perez stresses the social aspect of the synergy phase: “The turning point has to do with the balance between individual and social interests within capitalism. It is the swing of the pendulum from the extreme individualism of Frenzy to giving greater attention to collective well-being.”  The fourth and final phase of the long wave is “Maturity”, when the potential of the technology complex has been largely exploited, and the seeds of the next cycle are being sowed in the form of new invention and discovery.

If the theory holds, we have been in the Synergy phase of the ICT cycle for a few years since the dot-com crash. In the case of the current cycle, the technology itself intrinsically supports human interaction, and therefore enterprising sociality. To some extent this paper is an observation of this phenomenon unfolding, with a bit of speculation about where it seems to be going. One such observation is that the Synergy phase of the ICT wave is coincident with a strong current focus on services, as discussed in the next section.