29 June 2022. Innovation | Futures
Waiting for the political benefits of the digital revolution. // Keynes and imagining the future.
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The innovation academic Carlota Perez has an odd article on her Medium page puzzling away at what she thinks is an anomaly in her ‘technology surge’ model. The anomaly is this: we should be in the ‘deployment’ stage of the current Information and Communications surge, which started in 1971. But she thinks that we’re still in the ‘Installation’ phase. So she spends her article wrestling with why this might be.
I’d better back up a bit.
The Carlota Perez model—which built on earlier work her then colleague Christopher Freeman—connects innovation cycles with technology cycles. It is a big picture model, which says that we have had five technology ‘surges’ since the industrial revolution. It’s also a heuristic rather than a law. The surges are mapped out in this diagram below.
(Source: Carlota Perez)
They also have common characteristics. Overall each surge lasts 50 t0 60 years. They follow an S-curve pattern. In the first half, the ‘installation’ phase, the investment focus is on putting in infrastructure, and this is funded by finance capital.
The second half is the ‘deployment’ phase, and this is funded by production capital. In other words this is where one sees market growth, based on selling actual goods or services to actual customers.
Here’s the kicker: in between the two halves of the S-curve is a crash which is also a turning point, caused because the rate of take up of the cluster of technologies that is driving growth is too slow, and so investors get impatient and dump the investment. So production capital gets to pick up the pieces, and at a discount.
And here’s the model of that.
(Source: Carlota Perez)
The thing is: the ICT curve follows this pattern pretty exactly. She dates it from 1971, when the micro-processor was invented. (Each of the surges starts with the invention of something that creates a new source of abundance, even if that thing can only be recognised in hindsight.)
The internet crawled into use shortly after, but only amongst small groups of academics. It took 18 years to the invention of the world wide. 23 to the first commercial deployment. The dot com crash happens in 2002, after 31 years.
Most of the large customer-facing companies that dominate the digital world now came into existence as new businesses in the years around the crash: Google 1998, Amazon 1994, Facebook 2004.
One of the other features is that businesses that were visible in the installation world either go bust or they reinvent themselves. Apple (1977) reinvented itself, as did Microsoft (1975), though less drastically. AOL (1983) was sold, but not until it had smartly traded in its inflated pre-crash share price for some actual assets (in the shape of Time Warner).
If we look back at the previous oil/auto cycle, we see something similar. General Motors created itself as a consumer-facing business from the 1930s. Ford almost went bust trying to copy them.
And just to finish the story: eventually, at the end of the deployment stage, growth slows down and returns fall, and investment capital starts to look for the next new thing. When you compare the oil/auto surge with the ICT surge, you also see—at it approaches the end of the S-curve—that in the last decade of the surge two things happen. This is from my analysis of her model, not her writing.
(Looks like an S-curve to me. Analysis: Carlos Iglesias, Dhanaraj Thakur, Michael L. Best)
The first is that regulators start to get interested in managing the external costs of the technology (seat belts, drink-driving, etc). The second is that it starts re-shaping behaviours because the technology is now ubiquitous (and so, with cars, you get the rise in Europe of the Big Box supermarket and the out of town business park. And you can see exact analogies of these in the digital/ICT surge.
In other words, this is a model with a lot of explanatory power. And you might be reading this and thinking: this all sounds like the model is still working.
But Carlota Perez doesn’t think so:
This time however, things are different. With the current ICT revolution, we seem to be stuck in the installation period or in what I call the ‘turning point’, which is the mid-way time of recessions and uncertainty, revolts and populism that reveals the pain inflicted on society by the initial ‘creative destruction’ process.
It’s her model, and I feel a bit presumptuous in suggesting that she is misunderstanding what’s going on here.
But a lot of her argument turns on this idea that there is a ‘golden age’ when production capital kicks in with its deployment stage. This is what happened in the oil and auto surge: 25-30 years of substantial economic growth, which spread a high level of consumer prosperity across the global North.
This was a legacy of two things: the post-war political settlement and the particular structure of the lead industries in the deployment phase (both relatively labour intensive and with decent margins).
But we don’t necessarily see the same thing in other deployment phases. The deployment phase of the Electricity/Steel surge, which ran from 1893 to 1908, was a period of extreme wealth inequality and violent industrial unrest. Going back a bit, the deployment phase of the Cotton/Canals surge (1797-1829) was a brutal period of wage suppression and social unrest.
In fact, in both these cases the political settlement came right at the end of the deployment period. In the former case, the Liberal Party welfare reforms started in 1906. In the latter, the Great Reform Act didn’t happen until 1832, after a 15-year period of political upheaval that included the Chartists’ protests and the Peterloo Massacre. So it’s possible that some kind of more equitable political settlement is coming, but as in these other surges it is going to turn up late.
One explanation of the why the current deployment phase hasn’t produced a Golden Age might just be that it has produced plenty of wealth, but that wealth hasn’t been shared with the workers.
Her explanations are: (a) that this surge is about mental labour not manual labour, which would align with wealth being created but not spread; (b) it’s global so it’s more complex (but see the S-curve above based on ITU data); (c) the infrastructure arrived late; (d) the power of global finance; (e) gerontocratic politics; and (f), China.
But these explanations are all predicated on the idea that we’re still stuck in the turning point. And as it happens, China fits her model pretty well. Alibaba was founded in 1999, for example, and took off as the Chinese consumer internet took off. Tencent was founded in 1998.
My best estimate is that we are near the end of the ICT/digital surge, and that the next technology surge will arrive in the late 2020s, although we won’t know what it is until afterwards. Building on Perez’ work, I’ve also written about the characteristics of the ‘pre-installation’ phase. The best candidates are a ‘bio’ surge and a ‘materials’ surge.
Are there reasons why the Perez model might break down? It’s a model of how capital accumulation translates into innovation, and if models of capital accumulation started to break down, her model might break down. In a world of collapse or of degrowth, it would almost certainly stop having explanatory power.
One of the routinely misunderstood projections of the 20th century is the one by Keynes written in 1931 where he write that our main problem in the future would be managing our leisure time. What people tend to miss is that he was writing about the ‘economic possibilities for his grandchildren’—in 2031. He might have been a few years early, but some of the current trends are pointing in his favour.
(Portrait of Keynes sketching, by Duncan Grant. Via the Art Fund.)
Anyway, there’s a piece on the IFTF’s Medium page by the futurist Charles Tsai which reclaims the article for futures thinking:
By 2030, he believed, we will have increased our standard of living four to eight-fold. Technological progress will allow us to produce the same things with “a quarter of human effort.” And most of us will work maybe three hours a day or fifteen hours a week. Not only that, once our basic needs are easily met, our morals will advance and we will find the love of money to be disgusting, semi-criminal, and semi-pathological.
Well, his numbers weren’t too far off:
In his book about Keynes, The Price of Peace, (biographer Zachary Carter) cites economist Joseph Stiglitz who shows that global economic output has already reached a level that could lift everyone above the U.S. poverty line. Carter also cites another economist, Harvard’s Benjamin Friedman, who shows we are on track to that eight-fold increase in U.S. standard of living by 2029.
So far, of course, we haven’t solved the distributional problem, and Freud’s nephew, Edward Bernays, had quite a lot to do with fuelling capitalism by helping to turn needs into wants.
But Tsai takes three lessons away from the spirit of Keynes’ short essay, which I’ve edited down here:
1. 'Resist the pessimism of the present’
When everything seems hopeless, Keynes would advise, “take wings to the future.”
2. 'The future is deeply human’
In Keynes’ future, humans are not economic entities striving for subsistence. They are complex beings who face a new problem, one he calls “the permanent problem of the human race” — how to use one’s freedom, “how to live wisely, agreeably, and well.” ... The fundamental needs of humans for meaning, purpose, and belonging will always shape our futures, however distant or near.
3. 'Live the future today’
When Keynes looked at how the wealthy class used their freedom, he was disappointed: “most of them failed disastrously.” Nevertheless, he believed with a little more experience, we will eventually learn how to live better. It’s important that we begin “making preparations for our destiny” by starting to experiment in what he calls “activities of purpose.”
And there’s one more point here as well, about the value of imagining the future as being an open space:
Keynes lived in the world of possibilities and chose radical optimism, which only long-term thinking allows. The way Keynes saw it, “In the long run, almost anything is possible.”
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